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Stealth Trading in FX Markets

Author

Listed:
  • Alexis Stenfors

    (University of Portsmouth)

  • Masayuki Susai

    (Nagasaki University)

Abstract

We investigate if and how other traders react to algorithmic order-splitting tactics. Studying over 1.4 million limit orders in the EUR/USD foreign exchange (FX) spot market, we find that stealth-trading strategies adopted by algorithmic traders seem to go detected and are perceived as more market-moving than orders of the corresponding size typically submitted by human traders. We also document that algorithmic traders appear to be more sensitive to limit orders submitted from the opposite side (free-option risk) than to the same side of the order book (non-execution risk). Once human traders have had time to react, however, the pattern reverses.

Suggested Citation

  • Alexis Stenfors & Masayuki Susai, 2021. "Stealth Trading in FX Markets," Working Papers in Economics & Finance 2021-02, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    • Handle: RePEc:pbs:ecofin:2021-02
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    References listed on IDEAS

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    More about this item

    Keywords

    algorithmic trading; foreign exchange; limit order book; market microstructure; order splitting; stealth trading;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F3 - International Economics - - International Finance

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